Duality and Faustmann: Implications for the evaluation of landowner behavior

Abstract

This paper examines the behavioral consequences when landowners seek to minimize costs rather than maximize profits. We derive a cost function that is dual to the net present value function in the Faustmann Model. This cost function provides a theoretical foundation for studies that estimate forest production costs. We use comparative statics methodology to derive qualitative results for changes in selected policies and exogenous parameters. We find that the qualitative impacts under cost minimization are usually unambiguous. Qualitative impacts under profit maximization are usually ambiguous. This implies that behavioral impacts are usually easier to assess a priori, when landowners minimize costs rather than maximize profits.